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(3) It is my understanding that the Defense Department receives all the fuel it requests. Is this correct? If so, what is FEO doing to take into consideration the concentration of military facilities--and therefore use of West Coast fuelin California?
(4) California utilities have expressed concern over their position under the fuel allocation program.
a. Although the program calls for equitable distribution of residuals to utilities, this concept is not fully explained. Is there any provision for allocating the fuel on the basis of the economic makeup of each area-the number of industries for example-and the relative economic dislocation which could result from a shortfall in supply?
b. When will the residual fuel oil program be implemented fully? There is apparently a concern that FEO has not been notifying utilities the specified 15 days in advance. Are you aware of this concern, and communicating it to FEO in Washington, D.C.?
c. Do you have figures on the amount of residual fuel each utility in California will receive?
d. To minimize these and other problems, it is felt that utilities could be used effectively in determining policy in the allocation of fuel. Has this been considered? Could you suggest this idea to the FEO in Washington?
(5) The Los Angeles Department of Water and Power current prices-$25 a barrel-will mean doubling of rates in that area. Will FEO acquire needed low sulfur fuel for California utilities at equitable prices?
(6) One intent of the fuel allocation program is to provide agricultural industry with all of its fuel needs. However, this intent can easily be undercut by the inability to acquire agriculture-related products whose production is more severely regulated. For example, the industry is dependent on the full production of herbicides, pesticides and fertilizer, all of which are made from natural gas or oil. It is my understanding that none of these products are given high priority for oil which agriculture users receive for acquisition of petroleum products. What are you doing to ensure that shortages of these items due to the inability of their producers to acquire petroleum products do not undercut the intent of the mandatory fuel allocation program?
(7) There is concern that a distinction could be made in the interpretation of the phrase "current requirement" vs. that of "current need". Is there any distinction between these phrases, in the opinion of FEO? Who, under the allocation program, is to determine the "current requirement" of an end user?
RESPONSE BY WILLIAM ARNTZ, REGIONAL ADMINISTRATOR, FEDERAL ENERGY OFFICE,
Hon. JOHN V. TUNNEY,
DEAR SENATOR TUNNEY: Thank you for your letter of January 25, 1974. Please accept my apology for the delay in responding. I deeply appreciate your kind words regarding my participation in the January 22 hearing and would like to reiterate my commitment to the establishment of a viable and just allocation program as you indicated. As you know, I share your confidence that we can and will achieve such a goal in the near future.
With regard to your questions concerning enforcement (Nos. 1 and 2), the Regional Federal Energy Agency Office does not presently have authority to go directly to the local U.S. Attorney for court action against violators. Per Section 210.83 of the regulations we are authorized to deal with the Attorney General in Washington but, as I am sure you can understand, the time lag involved can be substantial.
Under the January 7 Memorandum of Agreement issued by the national Federal Energy headquarters through June 30, 1974, the Internal Revenue Service offices have responsibility and authority for investigation and enforcement of individuals not complying with the regulations. The Internal Revenue Service is authorized to deal directly with the local U.S. Attorney; however, it is unfortunately, my understanding that such appeals are presently being referred
by that office to Washington for verification of action which again generates considerable delay. It is apparent to you and to us that this flow must be eradicated as soon as possible. The training of a number of Internal Revenue Service agents specifically for this purpose and other concrete steps to put into effect a viable enforcement system will hopefully alleviate the long delays in resolution which you mentioned.
Referring to your question on defense allocations, in the interests of national security, it is necessary that the Department of Defense have access to appropriate supply. Strict conservation programs, however, have been instituted by Department of Defense to prevent military usage of petroleum products from having an adverse effect upon the civilian sector. Current Department of Defense programs have already decreased usage by 8% for fiscal 1974 which is substantially more than decrease figures for the federal government as a whole. The national office has primary responsibility for coordination with the Department of Defense, and they are aware of the ramifications of the concentration of military facilities in California.
Allocation of residual fuel for utility consumption is handled by the national office. I have referred copies of our correspondence to Mr. John Osborn and Mr. George Sandberg in Washington for further response to your questions on utility usage and the increased rates instituted by the Los Angeles Department of Water and Power.
Concerning your question as to the priority categorizations of agriculturalrelated production, as I am sure you can understand, inclusion of all industrial concerns which could semantically be interpreted as priority under the present regulations would negate the purpose of having priority classifications. Generally, producers of herbicides and fertilizers utilize petrochemical feedstocks; as you know, producers of petrochemical feedstocks are to receive 100% of current requirements under the regulations. The petrochemical feedstock fuel manager at the national office, Dr. Lyle Reed, should be contacted for further clarification. We are very much aware of the interrelation and interdependency of agricultural concerns with other industries and will continue to operate with maximum flexibility in reviewing specific situations as they arise.
In answer to your final question, there is no distinction between current need and requirement. Current requirements are determined individually by the enduser, supplier, wholesaler, etc. based on the statistics and circumstances of his enterprise. To review present procedures, if an end-user is not receiving the appropriate percentage of his current requirements as set forth in the regulations, he can request an increased allocation from his supplier who in turn petition the regional office for a permanent adjustment. If the supplier refuses to do so, the end-user can request review by the state board. Having determined the legitimacy of the complaint, the state office may then refer the case to the regional office for definitive action. The regional office will review all cases of the above outlined nature and direct action to ensure that the needs of priority users are fulfilled and that adequate supply is equitably distributed on a pro rata basis to non-priority users.
I appreciate having the opportunity to clarify the above points and will be looking forward to being of assistance in the future. Very truly yours,
WILLIAM C. ARNTZ,
COMMITTEE ON THE JUDICIARY,
SUBCOMMITTEE ON REPRESENTATION OF CITIZEN INTERESTS,
Mr. WILLIAM ARNTZ,
Regional Director, Federal Energy Office,
Washington, D.C., February 18, 1974.
DEAR MR. ARNTZ: You will recall that at the hearing I conducted in San Francisco on January 22 on the subject of citizen redress under the fuel allocation program, I indicated I would forward to your office and the Department of Justice and the Internal Revenue Service cases brought to the attention of my office which appear to violate the Mandatory Fuel Allocation Regulations.
Attached to this letter is a list of 20 cases which appear to be violations of the regulations. They involve numerous offers of fuel and petrochemical feed
stocks to distributors and end users at prices substantially above the going market rate. Sources indicate, for example, that jobbers or brokers are buying fuel from suppliers and reselling it to their own clientele at substantially higher prices. These people are also illegally claiming allocations for 1972 end-users which are now out of business and selling these allocations to the highest bidder. End-users who are now out of business are themselves claiming allocations and reselling them.
Examples of stockpiling are also included. Closed gas stations in some locations have full gas tanks which are loaded and unloaded in the dead of the night. In one case a station owner was told to move to another gas station or his allocation would be cut. He did move, and the gas tanks of his old station were then filled as part of the stockpiling network. Underground tanks at abandoned gas stations are also reported to be full.
There are also examples of other irregularities and possible violations. For example, as I indicated in the hearing, one supplier is now imposing discriminatory credit terms on a distributor despite clear language in the regulations outlawing changes in normal credit practices.
I do not intend to release publicly the sources of my office's information on these cases, but have attached all details known to me in order to aid your investigation of these cases.
It was my understanding from the hearing that your office and the Internal Revenue Service would be adequately trained and staffed to begin investigations of violations by the middle of this month. In my view, these investigations and a serious campaign to crack down on violators cannot begin soon enough. The American people can be expected to continue to cooperate with the program if and only if they believe it is working fairly and even-handedly. If, as substantial evidence would seem to indicate, the program is plagued with black marketeering and price goughing, compliance will not be forthcoming.
Before the hearing record closes on March 4th, I would like to include a status report of your enforcement actions.
I appreciate the monumental task before you, and pledge to lend my support to your efforts to enforce the regulations so that all citizens have their rightful share of needed fuel and feedstocks.
(a) Cases (1), (2), (3) and (6) refer to petrochemical products. It is my understanding that the Regional FEO is responsible for compliance with all FEO regulations, although regulation of this petroleum by-product is under the authority of the Washington, D.C. FEO.
(b) In all cases sources volunteered the information. In no case was there any indication of irregularity on the part of these sources. The sources have been informed that this information would be forwarded to the appropriate agencies for investigation. In addition they have been assured that this information would be kept confidential.
CASES FOR INVESTIGATION*
1. Source: Constituent A, San Francisco, California
Claim: Mr. B contacted constituent A offered 20,000 lbs. of Dow Chemical general purpose styrene #685 (plastic pellets made from petrochemical feedstocks) at 85¢/lb. Mr. A. is having a very difficult time obtaining any plastics material at the going rate, 91-19¢ lb.
2. Source: Constituent A-same address
Claim: Mr. B in Sausolito offered constituent A 40,000 lbs. of styrene extruded into sheets of plastics meeting specifications for 85¢/lb. The market rate is again 18-19¢/lb.
*Names and addresses deleted by Subcommittee to protect confidentiality.
3. Source: Constituent C, Hayward, California
Claim: States "there is polyethylene material to be had via the black market but at prohibitive prices."
4. Source: Constituent D
Claim: He was offered diesel fuel in December at 55¢/gallon.
5. Source: Constituent E, San Diego
Claim: Stated in hearing that tuna boat owners in December were offered a chance to invest in "oil exploration" that would assure that a supply of fuel at a price substantially above that of the fuel alone.
6. Source: Constituent F, San Francisco ·
Claim: Stated that although he is experiencing great difficulty in obtaining plastics products produced from petrochemical feedstocks, he has been offered substantial amounts of the products at bootleg prices.
7. Source: Constituent G, Firebaugh, California
Claim: Texaco product has been offered at bootleg prices to be purchased through International Plastics and picked up at a San Clemente dock.
8. Source: Constituent G
Claim: Fuel is available from a truck stop in Oxnard, to be delivered to the site at 52¢/gallon.
9. Source: Constituent G
Claim: Loads of diesel fuel have been brought into the San Joaquin Valley from Colorado and Reno, Nevada, at 61¢/gn. and 52¢/gn. respectively.
10. Source: Constituent G
Claim: A Merced rancher was offered fuel at 62¢/gn., cash on delivery and no receipt.
11. Source: Constituent G
Claim: A rancher in Firebaugh was offered fuel from a bartender in Madera, to be delivered to Firebaugh at 62¢/gn.
Note: Constituent G named three ways the black market is operating in the Valley. It almost always involves jobbers or brokers who buy fuel from a supplier and resell it to their own clientele, as opposed to distributors who are under contract or are direct employees of one major company alone. (a) Jobbers or brokers have 1972 allocations for end-users who have gone out of business in the area, "freeing" that allocation for the brokers' use at his discretion; (b) end-users who no longer have a need for their 1972 allocation of fuel request it from their distributors, and then resell it at substantially higher prices; and (c) Retailers of fuel at truck stops and gas stations which were open in 1972 and are now closed obtain their 72 allocations and resell it.
12. Source: Constituent H, San Diego
Claim: 80,000 gns. of diesel fuel were offered to him. It was to be delivered by truck from Houston at 36-40¢/gallon. The retail price at that time was 24¢/gn.
13. Source: Constituent I, Bakersfield, California
Claim: Widespread rumors persist as to the presence of a large black market in the area, at diesel prices of from 65¢ to 90¢ a gallon. One specific was offered : A broker in Bakersfield was offered a shipment of 130,000 barrels of diesel fuel from a tanker off the East Coast. Price: $15.70/barrel; with 32 gallons per barrel, this averages out to approximately 50¢/gallon wholesale.
14. Source: Constituent J, San Leandro
Claim: Received two offers to purchase #2 diesel January 10th; 100,000 gallons (15,000/wk.) at 57¢ including tax, and 100,000 gns. at 51¢/gn., including tax. Their present price from Phillips is $.226 + 13¢ tax; .356 per gallon. Both offers came from contacts in Northern California; a third offer came recently from Minneapolis to purchase 500,000 gallons at 57¢/gallon.
15. Source: Constituent K., Palmdale, California
Claim: Although Phillips is K's supplier, it ceased supplying him in May, 1973. Upon contacting his intermediary supplier after the January 15th regulations went into effect, K. was told he would be supplied at his 1972 levels if he so requested, but the price per gallon for gasoline would be 47.25¢ wholesale. 16. Source: Constituent L, San Diego
Claim: Since 1946, Texaco has handled all large fishing vessel credit on a trip-to-trip basis. However, Texaco began in November to supply fuel to L's customers on a COD basis only, is reputed to be on a COD basis now with the U.S. Navy in that area, and has stated verbally that it plans to discontinue all credit to industrial users, farmers, fishing vessels and others. This practice is in violation of federal regulations, in effect since October 16, 1973, which require allocation of regulated fuel sale according to "normal business practices”, specifically mentioning normal credit practices.
The current section in effect in Section 210.62, January 15, 1974 Federal Register.
17. Source: Constituent M and constituent N, Fairfield, Ca.
Claim: The City has experienced continual difficulty in obtaining a dependable supply of gasoline from its supplier, Shell; M was notified verbally in midJanuary that the City's supply would be cut off as of June, 1974. At the same time, the City has received information (via a City employee who converses regularly with Shell truck drivers when they make their deliveries) of the following:
(a) The Shell storage plant for the Bay Area, at Martinez, is full and has been for some time, resulting in the temporary layoff of plant employees.
(b) Fuel continues to be brought into the region, and is now being taken to abandoned service stations and abandoned tank farms throughout the Bay Area for storage. As many as 14 truck-and-trailer loads are being taken to these abandoned locations.
(c) M mentioned that the County of Solano and the cities of Vallejo, Vacaville, and Dixon are being informed of similar cutbacks in supply by the same supplier, Shell.
18. Source: Constituent I, Bakersfield, California
Claim: Similar instances of stockpiling are reported in the Bakersfield, despite widespread shortages of diesel and gasoline at retail and wholesale levels. "I" has been told of and/or witnessed filling of underground tanks at abandoned Arco, Exxon, Union, Shell, and Mobile service stations. At least one site, a Mobile station, he identified, as holding diesel fuel.
19. Source: Constituent O.
Claim: Large stockpiling in the Sacramento area. (a) Trucks have been sighted at various now closed Sacramento gas stations storing fuel in the underground tanks, often "in the dead of the night." Tanks are padlocked. (b) Source quoted a Mobil Co. executive as saying the oil cos. were storing gasoline in the abandoned gas stations. (c) An ARCO gas station owner was told his allocation would be cut back to 9,000 gns./month unless he moved to a closed station at 16th and D Streets. Upon moving, ARCO began filling the tanks at his former station, at Sacramento and Fruitridge Sts. This dealer claims gas is being stored at 10-15 stations in Sacto, and Hancock dealers have been contacted by ARCO and told that if the fuel is still being stored in 6-8 months and begins to break down, ARCO will unload it to Hancock at a reduced price. In the meantime dealers in this area are being cut back significantly on their allocations. 20. Source: Constituent P, Los Banos, California
Claim: Large volumes of diesel oil have been seen being dumped at an abandoned pumping station three miles west of Los Banos on Highway 33.
Residual oil allocations to utilities for the month of February